TIDAL to fund royalties for free tier from ‘operating budget’ instead of ads

Last week TIDAL made some significant moves that brought new life to its music streaming service.

Most notably, TIDAL launched a shift to direct-to-artist payments and fan-centered royalties for its HiFi Plus $19.99 tier. While some analysts question if fan-centered payments actually mean more money for artists, its an important experiment that the industry will be watching very closely. [Details on how it works here.]

What caught our attention was TIDAL’s new totally free tier that offers full access to its entire music catalog and playlists with “limited interruptions.”

Spotify and a few others offer free music streaming supported by ads, but we’ve confirmed that TIDAL’s free tier uniquely will not carry any paid or outside advertising.

Since streaming music royalties are calculated as a percentage of revenue including subscriptions and ad sales, we asked how with no revenue from either will TIDAL calculate and pay royalties to artists and labels.

Here’s what a TIDAL spokesperson told Hypebot today:

“TIDAL will fund the free tier out of their own operating budget. TIDAL will pay royalties on free usage in line with other services that have services of this type in the market.”

So artists will get paid for plays on TIDAL’s free service presumably at a rate similar to the lower than Premium streaming rate that Spotify’s free ad-supported service pays.

Tidal’s Big Gamble: Why pay when you get so much for free?

A free tier without ads could help the lagging streamer grow to compete with Spotify, Apple Music and Amazon.

It’s a bold and potentially expensive move for TIDAL made possible by Jack Dorsey and Square’s recent $302 million acquisition of 80% of TIDAL. It’s also difficult to see how it is sustainable in the long term.

As important as TIDAL’s experiment with direct-to-artist payments and fan-centered royalties is, this adless foray into free streaming also bears watching.

After all, if the major incentive to pay for streaming music is now only higher quality audio, how many fans will ever be willing to pay $10 or $20 per month?